Return On Average Assets - ROAA

See: Return on Assets. See: Average Assets.

Companies own stuff. They use this stuff to run their business. Hopefully, the process brings in money, which turns into profit, which they can then use to buy more stuff...or at least to pay for the sushi bar in the executive lounge.

The return on average assets lets companies know how well it's using the stuff it has. It tracks operational efficiency by looking at the amount of profit generated from its assets. The figure is calculated by dividing net income (after taxes) by its total average assets.

The asset figure comes from the firm's balance sheet. Since the number can change over the course of a financial period, the ROAA figure takes an average. Add the total assets at the beginning of the period to the total assets at the end of the period, then divide by two. That calculation gives you the average total assets figure.

The advantage of ROAA versus a similar measure, return on assets, is this averaging. The ROA figure only looks at the asset number from the end of a financial period. ROAA takes into account the change in the total asset amount over time.